THE KING, THE COURTS, AND THE RISE OF ARBITRATION

UNCLAS SECTION 01 OF 02 CASABLANCA 000198 SIPDIS SENSITIVE STATE FOR NEA/MAG COMMERCE FOR NATHANIEL MASON DEPT FOR EB/IFD/OIA STATE PASS TO USTR TREASURY FOR OASIA E.O. 12958: N/A TAGS: EINV ETRD EFIN ELAB PGOV MO SUBJECT: THE KING, THE COURTS, AND THE RISE OF ARBITRATION REF: RABAT 0719 CASABLANCA 00000198 001.2 OF 002 ¶1. (SBU) Summary: With only 150 judges in the entire commercial judiciary and close to 100,000 pending cases, Morocco's slow and often inept judicial system has made international firms increasingly skittish about investments and business transactions. In his major annual youth day address in late August, King Mohammed VI outlined a roadmap for "the in-depth, comprehensive reform of the judicial system", citing among the priority areas improving Morocco's business environment. For the time being, more and more local and foreign firms are turning to Alternative Dispute Resolution services in an effort to circumvent the long delays in the commercial dispute process. End Summary. -------------- It's A Numbers Game -------------- ¶2. (SBU) In his major annual youth day address in late August, the King drew up a roadmap for "the in-depth, comprehensive reform of the judicial system," providing details as to how judicial reform should proceed. Among the King's six priority areas were improving the business environment and the conditions for fair trials (reftel). The King's emphasis is well placed, as recent UN and World Bank studies highlight Morocco's shortcomings in this area, indicating that the inefficiency of the country's judicial system is hampering economic development. ¶3. (SBU) Morocco's judicial system perceived as flawed both domestically and abroad, with excessive bureaucratic red tape and a slow and often uncertain judicial process, which at times deters both local and foreign investment. Reda Oulamine, a corporate lawyer who does legal consulting for foreign clients seeking to invest in Morocco's retail sector, told Econoff that his clients' primary concern is the state of the legal system. "Morocco loses foreign investment due to the blatant inefficiencies of its commercial court system. Worried, some clientele simply choose to invest elsewhere." Such concern is well founded. According to the World Bank's 2010 Doing Business publication, Morocco ranks 128 out of 183 countries for ease of doing business, with its overall position dragged down by poor rankings in protecting investors (165 out of 183) and in enforcing contracts (108 out of 183). ¶4. (SBU) "The country's judicial shortcomings are largely mathematical. A numbers game if you will," explained Oulamine. Morocco's commercial courts are simply overwhelmed by the volume of cases, requiring judges to deliberate on multiple motions and dozens of cases in the same sitting. With nearly 150 judges in the commercial judicial system and close to 100,000 cases on file, on average (theoretically) each judge would have to hear an estimated 600 cases per year in order to keep up with this workload. (Note: There are close to 3,300 judges in the judicial system overall and an estimated three million cases of all types pending. End Note.) Commercial litigation is often more time consuming than disputes in other areas as judges face complex legal issues and large financial stakes. ¶5. (SBU) Investors are also concerned about the perception of corruption among the country's magistrates (reftel) and difficulties in enforcing judgments. According to data from the Casablanca Commercial Court, the resolution of a commercial dispute on average takes 615 days. "The slow deliberation of courts and the subsequent difficulties in enforcing their judgment leads international firms to undertake fewer investments and business transactions," says Abdallah Chater of Casablanca's Regional Investment Center. Over 60 percent of commercial cases are heard by the Casablanca Commercial Court. -------------- The Rise of Arbitration -------------- ¶6. (SBU) To circumvent the long delays in the commercial dispute process, more and more local and foreign firms are turning to Alternative Dispute Resolution (ADR) services. Arbitration, in particular, is increasingly being used in Morocco today. Since the implementation of the 2007 Arbitration Law, the number of national organizations dealing with arbitration has increased. The General Federation of Moroccan Businesses (CGEM) has a mediation organization and encourages its members to use arbitration, and the CASABLANCA 00000198 002.2 OF 002 Casablanca Chamber of Commerce recently created an arbitration and mediation section. "Arbitration, which typically deals with complex legal disputes, is well suited to succeed in Morocco," explained CGEM's President Mohamed Horani, one of the leading forces behind arbitration in Morocco today. Close to 90 percent of CGEM members have used arbitration at some point to resolve a commercial dispute. The Ministry of Justice in particular has been a staunch supporter of ADR in commercial disputes, as it would provide much needed relief to their overwhelmed commercial courts. ¶7. (SBU) Professor Azzedine Kettani, one of Morocco's pre-eminent arbitrators explained, "While trials are public in Morocco, arbitration can be done discreetly, saving firms from potentially costly and embarrassing disclosures." Moreover, parties can select arbitrators who are technical experts in the field of dispute, added Kettani. -------------- The Limitations -------------- ¶8. (SBU) While nothing prevents parties from appointing foreign arbitrators, one area of concern is the dearth of qualified local arbitrators. Further, the use of arbitration can be costly, as clients have to pay not only for their lawyer's fees but also arbitrator's fees. "Unfortunately, arbitration remains a service for the well-to-do in society. Small and Medium Enterprises (SME) will continue to face an inept court system. Institutional change is what Morocco needs," confided Hammad Kassal, the former president of the SME Federation. -------------- Comment -------------- ¶9. (SBU) Reforming the country's commercial legal framework will be essential in promoting the growth of competitive businesses and supporting foreign investment in Morocco. Arbitration and other alternative dispute services should figure prominently in Morocco's judicial reform and may be a promising area for future activities supported by the Middle East Partnership Initiative (MEPI) and/or USAID. Success, however, will depend on the resources allocated to the task, and ultimately the leadership's long term commitment to comprehensive reform of the judicial system.